Monday, September 29, 2008

IMF welcomes “bold” U.S. bailout plan, says other countries should follow suit

Sources: IMF: A systemic crisis demands systemic solutions IMF welcomes step to reform

Reuters: IMF chief backs U.S. rescue plan, warns of slowdown

IMF managing director Dominique Strauss-Kahn, in an interview Sunday with French newspaper Journal du Dimanche, followed up on his earlier remarks in support of the proposed U.S. bailout of the financial sector.  He said he supported the plan “because it’s global...[b]ut it has to be the first step of international political action.”

The Director said that it was necessary for the U.S. to pass the bill to “put out the fire,” but that the effort could not stop there.  In his remarks earlier this week he stated specifically that “[o]ther advanced economies should also be preparing comprehensive contingency plans,” something that many countries have been reluctant to consider. 

He also stressed the need for international regulatory reform to follow in the wake of the meltdown and said that the IMF would be willing to serve as a leader of any new regulatory framework, perhaps as what he termed a “global guarantor.” 

Finally, while Strauss-Kahn acknowledged the worldwide economic slowdown likely to result from the financial crisis, he emphasized that the “real economy” is strong enough to survive and that the central banks were thus far succeeding in managing the crisis.


Is Strauss-Kahn correct when he asserts that a global solution is needed, implying that other countries will need to follow the U.S. in bailing out their respective financial sectors?  Would this be possible in the Eurozone, where governments are already subject to strict budgetary and deficit restrictions?  What do you think about Strauss-Kahn’s suggestion that the IMF play a lead role in future regulatory reforms?

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